Fred Wilson’s five lessons for budding venture capitalists are also pretty good life and work lessons

“A VCs most important role is that of a cheerleader,” says Fred Wilson, co-founder and managing partner of Union Square Ventures (USV), one of the most successful venture capital firms on the planet. “I know that seems like nothing. How hard is it to be a cheerleader? But it is everything. And very few venture capitalists do it.”

For the past decade, venture capital has been riding a wave of glamor and riches. Last year, the VC industry in the US had $333 billion in assets under management, double the assets in 2004. Few have ridden as high as USV, which invested in startups like Twitter and Zynga at the equivalent of pennies per share. ‘Seed and Series A are the way to make one hundred times your money,” Wilson said during a lecture at MIT’s Sloan School of Management. “I am not aware of another legal way to do that.”

In this talk, honoring the memory of General Georges Doriot–considered the granddaddy of the VC industry–Wilson shares his idiosyncratic take on the successful VC. More than anything, venture capital is psychological game that requires the VC to tap a heaping dose of humility while buoying the ego of the mercurial, often difficult, entrepreneur. In his hour with the MBA students, Wilson–an army brat who bucked the family tradition of attending West Point in favor of MIT–comes across as humble and thoughtful; intent on sharing his knowledge. “I am hoping that my generation can teach all of you, the next generation, all the things that we’ve learned.” This, he said, is in the tradition of Doriot, a mentor to many, many VCs.

Lesson No. 1: Learn to cheerlead

“The General did it. And that’s all I need to know about him to know that he was a great VC,” Wilson says.

It’s hard to imagine that entrepreneurs as insecure flowers. Yet the story of building any company is a story of challenges and doubts. (Even Mark Zuckerberg talks of dark moments.)

Wilson likens entrepreneurs to willful, talented children–a worthwhile if frustrating challenge. “If you do it well you can have tremendous impact,” Wilson says. Not just on the entrepreneur but “ultimately the world because it is these unsatisfied souls–ultimately that is what they are–who end up making things and companies that push us forward and change our lives, mostly for the better.”

Lesson No. 2: Find a cheerleader for yourself

It’s tough out there. “You need a cheerleader in your life. Find one and you will be better off because of it.”

For Wilson, his wife Joanne, aka The Gotham Gal, is his personal cheerleader. The pair met when they were undergrads and didn’t know a VC from a PC. “She is the secret to my success.” Joanne and her mom convinced Wilson to go to business school. “She believed in me from Day One. She believed in me before I did.”

Lesson No. 3: Fail spectacularly—and learn

“Fucking up royally is good for you if you take the time to learn from it,” Wilson says.

He can check that baby off his list. Wilson’s first brush with failure came freshman year when he was an undergrad at MIT. “I got a zero on the first test I took.” From that experience, Wilson says: “I learned to study, which I had never done in my life.”

The next failure came years later when he was running his first fund, Flatiron Partners, a dot-com era fund founded in 1996 and investing in internet companies only (which most people thought was crazy). He made a fortune and lost it “in a blink of an eye”.

“I am who I am because of Flatiron. It is where my belief system comes from,” Wilson says. All his instincts and insights stem from that spectacular setback. In 2003, Wilson teamed up with Brad Burnham and spent six months writing an investing manifesto and then another 18 months trying to raise $125 million. Only ten investors said yes. One hundred said no. So far, the risk-takers have reaped $1.6 billion in profits – and not all the companies have paid out yet. Nor has USV invested all the funds.

Lesson No. 4: Don’t go with the crowd

“The best time to invest in something is when nobody believes in it besides you,” Wilson explains with his understated style. The corollary: “You have to totally believe in it and you have to know why. That’s what the manifesto did for us.”

Believe, but also take your time in making investment decisions. USV has made 100 investments in the last 14 years–about seven companies a year. “That’s something I learned from Flatiron. Slow and steady wins the race.”

When asked where he would invest now, Wilson said he’d look to Africa and underdeveloped countries in Asia, where new companies and technologies can have enormous impacts. If you’re serious, move there. “Venture capital is a local business at its core.”

Lesson No. 5: Know who your clients really are

Most VCs think that the investors in their limited partnership funds are their clients, the people they need to cater to. “That’s wrong. Our customers are the entrepreneurs and the companies they build. Our investors are our shareholders,” he says.

“VCs are a service provider to entrepreneurs. We ride their coattails.” Don’t forget the pom-poms before getting on that ride.